An E&E Special Report

OIL AND GAS:

Water flows to money in drought-stricken drilling regions

Gayathri Vaidyanathan and Ellen M. Gilmer, E&E reporters

EnergyWire: Monday, July 30, 2012

Farmer Mike Cather, 55, lives in Harper County, Kan., at the center of the emerging Mississippi Lime oil field. His land is dry, his 950 cattle do not have enough to feed on, and ponds and streams are running low.

The oil industry is helping him cope, said Cather, who has three oil wells on his property.

"It's made this drought easier to stomach," he said. "I would be incurring more debt just to get through this drought period, and I'm not having to because of the industry."

Agriculture Secretary Tom Vilsack tours Eric Cress' farm early this week to examine crop damage caused by the drought. Cress said the Center Point, Iowa, farm is running around 7 inches behind normal rain levels for this time of year. U.S. Department of Agriculture photo by Darin Leach.

But water is starting to become an issue for the oil companies in Harper County. Restrictions on withdrawals from some streams kicked in earlier this month. There isn't much groundwater available in the arid region, prompting companies to go on a hunt for privately owned supplies from farmers and adjacent municipalities. The price of water has gone up to as much as 25 cents a barrel (1 barrel is 42 gallons), making the liquid a valuable revenue stream for farmers.

More than half of the United States is suffering from a drought, the worst recorded since the 1950s. High temperatures and low rainfall have dried out crops as well as rivers and streams, the very sources that oil and gas producers rely on for water in some states.

A regional water commission in northeastern Pennsylvania's gas country has suspended some permits for pulling water out of rivers and streams because of low flow levels, affecting the gas industry in the Marcellus Shale formation. Texas regulators last week put consumers on notice that it might curtail surface water withdrawals. In Oklahoma, municipalities are rationing water.

On the whole, the drought is not crippling oil and gas production, but companies are trying to cut their water consumption anyway, regulators, trade groups and companies told EnergyWire. The process of horizontal drilling and hydraulic fracturing, or fracking, can use anywhere from 4.1 million gallons of water in the Barnett Shale basin around Fort Worth, Texas, to between 6 million and 12 million gallons in the drought-prone Eagle Ford Shale in southern Texas.

The operators inject pressurized water underground, together with chemicals and sand, to break apart shale-rock formations and release oil and gas. Technology advanced by independent oil and gas producers has catapulted North America into a leading global energy producer, pushing water issues to the forefront for communities around oil and gas fields and for producers with plans to expand drilling.

The oil and gas industry's consumption of water is still relatively small, although it is growing at a rapid clip. But the dry spell has prompted questions from environmental groups and residents about how ready drillers and regulators are for additional strain on the water supply. Too much fresh water has disappeared, they say, and wastewater cannot be reused or returned to the water cycle without expensive treatment.

In some states, there isn't much clarity around how much water can be removed from freshwater supplies over the coming decades before depleting resources.

"How much can we really afford to divert for this purpose in a year? That's a number I think state and regulatory agencies need to work hard to come up with," said Jason Bates, spokesman for Colorado-based Western Resource Advocates. "We're sort of flying blind here, and that's not safe for anyone."

Texas braces for August

The state where the U.S. unconventional oil and gas boom began is just recovering from last year's drought, when it experienced the driest seven months on record. The Eagle Ford and Permian Basin oil and gas plays are still experiencing a moderate to severe drought, according to the National Weather Service (EnergyWire, March 6).

Many shale basins (pink) fall within parts of the United States where drought is expected to persist or intensify (brown). Water shortages are expected in Pennsylvania, Ohio, Arkansas, Oklahoma, Kansas, Texas, Colorado, Wyoming and Utah. Click the map for a larger version. Map data courtesy of the Energy Information Administration and National Oceanic and Atmospheric Administration.

Despite a slight abatement in drought conditions, the Texas Commission on Environmental Quality issued a statewide warning last week that it might curtail water rights this summer. Commission spokeswoman Andrea Morrow said the warning was inspired not so much by current conditions in Texas but by what is happening in the rest of the country. Regulators worry that drought conditions will spread into Texas in August, so they are taking precautions and hoping that water-rights holders start conserving.

The commission has issued six permits in the past six months to drillers for temporary withdrawals from streams, but Morrow said the permits could be pulled if things dry up further. They were last year. Regulators suspended permits to take water from streams in the San Saba River watershed outside of the Eagle Ford and Permian basins in the middle of the Texas drought of 2011.

Still, Texas drilling activity continued unabated last year, as drillers relied on groundwater or bought supplies from municipalities.

This year, Texas oil and gas field operators say they are securing water supplies. Devon Energy spokeswoman Cindy Allen said the company has adjusted its drilling schedule until water restrictions are lifted and its recycling and conservation pick up the slack.

Oil amid farms

Concern about water supplies east of the Mississippi River is heating up. In waves throughout the past month, peak day temperatures up and down the East Coast have been in the 90- to 100-degree-Fahrenheit range.

Trade groups for the unconventional drillers say they are managing water better all the time, shielding them from their worst-case scenario: having to shut in a large number of rigs and fracking operations. Some companies treat and reuse their wastewater. Some build reservoirs to collect and store rainwater for future use and do research into ways to use brackish water instead of freshwater. And they are changing their drilling schedules, so they frack only after restrictions during periods of drought are raised.

"A continuing drought could cause our domestic production to decline and derail our 'road to energy independence' in a hurry," said Chris Faulkner, CEO of Texas-based Breitling Oil and Gas. "In many areas, companies that sell water to oil and gas drillers also sell to farmers. Farmers come first."

The National Weather Service has classified parts of Pennsylvania and Ohio, which overlie the Marcellus and Utica shale formations, as suffering from moderate to severe drought. Low levels in Susquehanna River prompted the Susquehanna River Basin Commission (SRBC) this month to suspend dozens of water withdrawal permits in its 27,000-square-mile watershed, a hotbed of natural gas production. Drillers must stop drawing from the system when water levels reach a low point specified in their water permits from the commission (EnergyWire, July 19).

Travis Windle, a spokesman for industry group Marcellus Shale Coalition, called water-saving and recycling technologies "environmental and economic winners." But those technologies are also required in Pennsylvania, where the geology does not allow injection of wastewater into the ground for disposal. Transporting wastes to adjacent Ohio can be more expensive than retreating, and recent changes in state rules require drillers to treat their waste in specialized facilities before releasing it into water systems.

Kathryn Klaber, president of the Marcellus Shale Coalition, asserts the SRBC water suspensions are short-lived and drillers can outlast water restrictions because of their reliance on recycling and reusing wastewater.

That might be good for an industry that could face tougher rules governing when its members can and cannot dip into rivers and streams during hot and dry periods.

Under a pending SRBC proposal, field scientists would measure river and stream levels against monthly seasonal cycles instead of with a conventional method using annual average flow rates. The commission and Nature Conservancy, which developed the proposal, say the plan updates and brings more precision to the science, and it is in the context of an expected increase in demand from Rust Belt industrial sectors and a growing population.

Michele DePhilip, director of freshwater conservation in the Nature Conservancy's Pennsylvania office, said it is an appropriate response to rising water demand from oil and gas producers. "There's now demand for water in streams that hadn't had any or many withdrawals from them," she said. "It certainly highlights where the potential impacts [of water withdrawal] are when we see conditions like we have this year."

Compared to the parched watersheds of the West and troubled waterways in the Southeast, the Susquehanna system is relatively abundant, taking in 50 billion gallons of precipitation a day under average conditions. But the Nature Conservancy points to growing population projections and the potential for a rapid decline in water abundance if industrial development tied to oil and gas escalates.

"It could still have a lot of effect ecologically," DePhilip said.

The SRBC expects the population around the lower Susquehanna Basin to increase 30 percent in the next 20 years. The Marcellus Shale underlies about three-quarters of the basin, and drilling there accounts for about 5 percent of the system's consumptive water use.

Much of the rest of Pennsylvania, including the state's part of the Ohio River Basin, is managed by the Department of Environmental Protection. A DEP spokeswoman said the agency plans to continue granting water permits on a case-by-case basis, which is, "in essence, a low-flow policy," as prescribed in the Susquehanna basin.

Water marketplace in the West

Parts of Colorado, Wyoming and Utah are in an "exceptional" drought, according to the National Weather Service, but it has led to water shortages for drilling.

In the West, scarce water for farmers, ranchers, municipalities and companies to drench the parched earth goes first to those who have held permits the longest. Because gas drillers have acquired water rights more recently, they are more likely to be cut off first. The farmer or rancher whose property was in the family for generations and has an aging document giving him or her first dibs on water is less worried about being cut off.

With oil and gas elbowing their way in, a new marketplace is cropping up around water scarcity. Farmers are transferring their rights temporarily to oil companies in exchange for cash.

"One of the sayings out here is that water flows to money," said Bob Leake, regional engineer at the Utah Division of Water Rights.

In such cases, the companies are allowed to extract a smaller amount of water than a farmer under transferred permits because water used in fracking is not returned to the water cycle, Leake said.

In Colorado and Wyoming, water storage and reuse have so far saved drillers from drought-related problems, said Bob King, interim director of the Wyoming Oil and Gas Conservation Commission. Colorado also has recommendations for drillers to do more water recycling and reuse, partly because of the West's history of contentious water conflicts, said Karen Spray, acting environmental manager for Colorado's oil and gas agency.

But Western Resource Advocates, which released a report last month on water use in fracking, is pushing for Colorado and other Western states to do long-term studies on the effect of increased drilling on the water supply.

"We've got the worst drought for at least 10 years, we've got water restrictions in different cities, so why are we selling water to oil and gas companies -- or for any other use?" said Bates of Western Resource Advocates. "Let's plan out our water use so that 10, 15 years from now we don't go, 'Oops, we're out of water.'"

Some areas of Kansas, Arkansas and Oklahoma are seeing dry weather for the second year running. Ranchers are downsizing their herds because less feed is available from the parched Midwest.

"We stood in cornfields yesterday that were only 2 feet tall," said Lane Letourneau, water appropriations program manager for the Kansas Department of Agriculture's Division of Water Resources, who is touring the drought-stricken parts of his state. "They were facing a disaster. I felt sorry for those folks."

But oil and gas is surviving because they are either managing their water use carefully or buying water from suppliers who still have plenty available, Letourneau said.

In Kansas, SandRidge Energy have been using salt water that cannot be used to feed people or cattle for drilling, said farmer Mike Cather, on whose property SandRidge is operating. The driller did not return a request for comment. Arkansas-based driller Southwestern Energy said it has not been directly affected by the drought, primarily because it uses less than one-tenth of 1 percent of the state's waters. Southwestern also built more than 160 freshwater ponds on private lands to collect rainwater. It is piped to the energy fields.

In Oklahoma, where farmers have to haul water long distances to feed cattle, people have not complained about the oil industry's claims to water, said Brian Vance, spokesman for the Oklahoma Water Resources Board. Drilling is localized in sparsely populated counties. For example, he said, while the oil industry has consumed 47 percent of the total water in tiny Coal County and 32 percent of the water in Hughes County, there isn't much competition for the resource.

"There still could be water shortages in the future, but we don't envision these two counties as particular 'problem areas,'" he said.